July housing sales numbers—down 27% from the month before--sent shudders through government, businesses and the investor world. It was more evidence of a slowing recovery. Buyers pulled back without the expired federal tax credit incentive. Fears increased that housing values and sales may sag further, possibly setting off the dreaded double dip. Meanwhile, mortgage rates stand at all time lows and home prices have already dropped 30-40% in many places. So what does this all really mean?

Government leaders (Obama, Geitner, Bernanke) will continue to cheerlead and try jawboning confidence. Politicians may criticize each other and throw around blame—“the country is going in the wrong direction under so and so (Obama, Geitner, Bernanke")—but nobody gets elected saying America is starting to fall behind and may not bounce back for a long time. Economists for big financial institutions don’t keep their jobs by turning excessively negative about U.S. prospects either—that’s bad for business. So explanations for the extended housing malaise range from high unemployment levels—people fear they may lose their job so put off buying when they otherwise can; and lenders have been too stringent, cutting off people who could otherwise buy; to people fear that values will go down even more so they are holding off when they otherwise would be back in the market. The rationalizations go on--once the employment picture improves and lenders loosen up, we’ll be back, fears will dissipate, and everything will be okay.

And you know if employment improves and wages track up that will certainly help, and if lenders loosened up that would too. But employment prospects look reasonably bleak—the economy isn’t creating enough jobs and loose credit standards helped get us into this mess. Wages for most Americans have been stagnant to down for more than a decade. Maybe lenders have over-corrected somewhat, but do we really want Fannie and Freddie to throw more good taxpayer money after bad?